Bread and Circuses: Reform Saudi Style

The time tested way to dampen popular unrest is to provide food and entertainment to the masses. The problem of course is that sometimes the funds are lacking. In Kuwait and Saudi Arabia, for example, this is not the case and the government’s have been "generous" in providing relief. Given the impact on oil prices of what appears to be a modest loss of output from Libya, investors are understandably concerned that the "jasmine revolution" could spread to the largest oil producer Saudi Arabia.

Saudi King Abduallah announced today increased social spending. A package valued at more than $11 bln was announced today, including increased spending on housing, education, social welfare; the creation of 1200 jobs in "supervision programs" and a 15% cost of living allowances for civil servants.

In effect, the 86-year old king is increasing the basket of goods citizens get in hope that it will help soften demands for political change. Six months ago, the Saudi government announced a $385 bln 5-year spending program aimed to reduce unemployment (20-24 year-old unemployment estimated near 40%).

Recall that starting this month, Kuwait has given its citizens a one-off payment of the equivalent of $3,560 and free food rations for thirteen months. Syria and Sudan have also reportedly increased social spending in recent weeks. Some Middle East equity markets have begun to tentatively stabilize. Abu Dhabi’s index snapped a four days losing streak and the Saudi market broke an eight days drop.

Marc Chandler joined Brown Brothers Harriman in October 2005 as the global head of currency strategy. Previously he was the chief currency strategist for HSBC Bank USA and Mellon Bank. In addition to frequently providing insight into the developments of the day to newspapers and news wires, Chandler's essays have been published in the Financial Times, Barron's, Euromoney, Corporate Finance, and Foreign Affairs. Marc appears often on business television and is a regular guest on CNBC and writes a blog called Marc to Market. Follow him on twitter.